You’re gonna need more than a bake sale…no matter what you’re baking.
Putting in a two-lane road in an undeveloped area costs $2M-$3M per mile.
Building a new city hall can easily cost over $5M.
Even installing a traffic light can cost over $200K!
Notice a common theme? Municipal projects are expensive. Thankfully, communities have a few tools at their disposal for raising money to pay for special development initiatives and unexpected repairs.
What To Raise Public Funds For
Municipal-funded public projects are a vital part of any community. When done right, local government solves big problems in the community and provides services the market wouldn’t provide (or would do so inefficiently) on its own. A few essential local-government infrastructure projects are:
- Office administration buildings;
- Buildings for the police, fire departments, and public works;
- Utility facilities;
- Dams, reservoirs, and canals; and
- Historic monuments and sites.
One thing municipalities should not pay for is what the Council thinks would be “cool.” In 2003, this one City we know fell to this temptation and, disregarding economic advice, sold $39 million in bonds to put in fiber optic cables throughout the City, believing that residents would sign up for their high-speed internet. While well-intentioned, the effort wasn’t supported by the market, and ten years later, the City sold the entire network to Google for $1. Residents are still paying off the debt.
Those kinds of blunders don’t get leaders reelected. Municipal debt is a necessary part of life, but behind every successful municipal project is careful economic analysis. If taxpayers are going to raise millions of dollars to do something, someone should spend a few days crunching numbers first to make sure it’s a good idea!
The 5 Municipal Fundraising Sources
Municipalities sometimes get creative with their fundraising, such as by using limited-purpose local government entities (Public Infrastructure Districts, Community Reinvestment Agencies, Economic Development Districts, etc.) or special financing schemes like Tax Incremental Financing.
But when you get down to the nuts-and-bolts of these efforts, they’re just combinations and applications of the five core sources of revenue available to all communities.
1. Taxes. Municipalities have the ability to levy taxes on residents under the authority of the state. The things they can against are specified in state laws. Most states only allow municipalities to levy “sale and use” taxes and property taxes, but a few states also permit them to collect income tax (Utah is not one of them).
2. Loans. Just like individuals and corporations, municipalities can apply for loans from lending institutions like banks. This method of fundraising is typically only used to overcome short-term cash flow deficits or to tide the budget over until a more long-term debt instrument can be used (like bonds).
3. Bonds. Municipalities can issue bonds to leverage future tax revenue into large sums today. Bonds are generally preferred to loans as long-term debt instruments because the terms are more favorable for municipalities. Private investors, financial institutions, and even members of the community can buy these bonds as ultra-secure investments and fund projects in their own neighborhood.
4. Fees. Municipal entities can issue fees for certain administrative services like reviewing a building permit application or fulfilling a GRAMA request. They can also charge for use of some municipal-owned resources like water, land leases, or facility rentals. Impact fees are an essential source of revenue in developing areas, though that type of money goes directly to costs of getting new infrastructure integrated into the city.
5. Grants. As it turns out, Big Brother likes to give away free money! Federal and state institutions commonly offer grants to cities and towns for projects including new infrastructure, water conservation, environmental protection, general planning, economic studies, and more.
Grants are the easiest way to get things done in your community. What’s more, there’s more grant money available than you might think. In 2017, for example, grant money accounted for over 53% of local government budgets nationwide.
Lastly, it’s important to remember that aside from physical infrastructure, municipalities should also invest in information. Economic research, surveying, natural resource data, and planning consultation help the community pass the right laws and guide development in productive ways.
Strapped For Cash?
Let our team help you find out what’s out there! We have partnered with Jones & DeMille Engineering to develop the “Funding Finder” tool. This site will help you refine your search for potential grant/loan programs.
Once you find the right funding strategy, let us help you bring it home! Whether it’s for a development, planning, or ordinance project, we can help you apply for the funding you need to take your community to the next level.
Call Rural Community Consultants today to get expert funding advice for your city’s next project!
Want To Learn More?
Check out our online training modules! Note: Rural Community Consultants is able to provide access to specific training modules free of charge, courtesy of the Utah Office of the Property Rights Ombudsman.